The IRS Publishes the 2020 Retirement Plan Contribution Limits
In early November the IRS announced the higher inflation-adjusted figures for retirement account savings for 2020, which is really helpful if you are trying to plan for next year. The limits are outlined below.
- 401(k) 403(b) and most 457 plan contribution limits go up from $19,000 in 2019 to $19,500 in 2020. The catch-up contribution limit if you’re 50 or older in 2020 will be $6,500 for workplace plans, up from $6,000. The same limits apply to the federal government’s Thrift Savings Plan. Please note even if you don’t turn 50 until December 31, 2020, you can make the additional $6,500 catch-up contribution for the year.
- The limits for the typical retirement savings vehicles for the self-employed and small business owners, SEP IRAs and Solo 401(k)s, have also increased from $56,000 in 2019 to $57,000 in 2020. That’s based on the amount they can contribute as an employer, which is a percentage of their salary; the compensation limit used in the savings calculation also goes up from $280,000 in 2019 to $285,000 in 2020.
- Another small business targeted retirement vehicle, the SIMPLE plan, has increased limits that have gone up from $13,000 in 2019 to $13,500 in 2020, with a catch-up limit that stayed at $3,000.
- Unfortunately contribute limit for IRAs, both traditional or rollover, and Roth IRAs stay the same for 2020: $6,000, with a $1,000 catch-up limit if you’re 50 or older. Remember that IRA contributions can be made until April 15 following the year the contribution counts toward. So, for 2019 your contribution needs to be at the custodian by the tax filing deadline, April 15th 2020.
- Bear with us as the next few limits are a bit confusing, but all is not for those that use IRAs as a primary savings vehicle. In 2020, the deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household (who are covered by a workplace retirement plan) and have modified adjusted gross incomes (AGI) between $65,000 and $75,000, up a whopping $1,000 from 2019. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $104,000 to $124,000 for 2020, also up a $1,000.
- For the IRA contributor who is not covered by a workplace retirement plan, and is married to someone who is covered, the deduction is phased out if the couple’s income between $196,000 and $206,000 in 2020, up from $193,000 and $203,000 in 2019.
- The inflation adjustment helps Roth IRA savers too. In 2020 the AGI phase-out range for taxpayers making contributions to a Roth IRA is $196,000 to $206,000 for married couples filing jointly, up from $193,000 to $203,000 in 2019. For singles and heads of household, the income phase-out range is $124,000 to $139,000, up from $122,000 to $137,000 in 2019.
- If you earn too much to open a Roth IRA, you can open a nondeductible IRA and convert it to a Roth IRA as Congress lifted any income restrictions for Roth IRA conversions.
If you need help assessing which plan fits your situation, or how to fully utilize the plan you have, or how of this fits into your financial plan please proceed to https://resolutefinancial.com/contact-us/ and contact your nearest office.